“All reasonable endeavours” – what does this really mean?
To what extent are the words “all reasonable endeavours” legally enforceable in court and what level of duty is imposed by the use of these words?
The obligation to use “all reasonable endeavours” is commonly used in contractual arrangements between parties and is often brought before the courts. Case law has determined that the use of “best endeavours” imposes the highest duty whereas the use of “reasonable endeavours” is the least onerous. The recent case of Astor Management AG v Atalaya Mining plc  EWHC 425 (Comm) explored these issues in relation to a dispute over the use of “all reasonable endeavours” for a Rio Tinto mining project in Spain.
Astor entered into an agreement with Atalaya for the sale of its shares in a dormant copper mine. Payment of most of the consideration (€63.3 million) was deferred and due only if Atalaya secured a senior debt facility to fund the restart of its mining operations. The agreement contained an undertaking for Atalaya to use “all reasonable endeavours” to obtain the facility on or before 31 December 2010.
Instead of obtaining the facility, Atalaya raised funds from within its group structure and its mining operations restarted. Shortly after this, Astor argued that the obligation to pay the deferred consideration had been triggered and the obligation to use reasonable endeavours to obtain the facility had been breached. The Defendant argued that as the facility was not obtained, it was not required to make the payment (and never would be). The Defendant claimed that there was no breach of the endeavours clause because the contract was silent as to any objective criteria regarding what was “reasonable”.
Where parties use an endeavours obligation without criteria, they are inviting the court to make a “value judgment”. Whether a party has performed that obligation is a question of fact for the court to decide. The court found that obtaining the facility was a precondition to payment of the deferred consideration and the obligation to use “all reasonable endeavours” to obtain the facility was enforceable and had been breached. In looking at the endeavours obligation, the court placed emphasis on its role of giving effect to the commercial agreement and intentions of the parties. Atalaya’s obligation to obtain the facility did not cease on 31 December 2010, but instead the obligation continued and Atalaya was required to use “all reasonable endeavours” to obtain the facility as soon as it was able to.
The impact of the decision
What an “all reasonable endeavours” clause actually requires will depend heavily on the other provisions of the agreement and the commercial context. This case highlights how important it is to ensure that specific details of what the “all reasonable endeavours” obligation entails is expressly stated in the contract (if possible) to reduce uncertainty. This may mean considering whether the following points need to be covered:
- how long the obligation lasts for;
- requirements for fulfilling the reasonable endeavours obligation;
- how regularly a party must report on the steps taken or efforts made;
- alternative means of achieving the intended objective; and
- consequences of failure to achieve the intended objective.
For more information, please contact Aneka Chapaneri.